Rich & Richer: Philanthropy's Golden Age

With the stock market booming and the super-rich getting even richer, charitable organizations are already seeing a wave of new money. The trend was already apparent before Warren Buffet pledged 85% of his $44 billion fortune to charitable foundations - the bulk of it to the Bill & Melinda Gates Foundation.

While it is difficult to capture a completely accurate picture of charitable giving in the U.S., some of the segments commonly used by the wealthiest individuals such as donor-advised funds and private foundations are seeing an influx of new contributors.

For example, giving by the nation’s 71,000 grant-making foundations last year rose 11.7% to $40.7 billion, according to estimates by the Foundation Center, a leading authority on philanthropy. The gain followed a 14.3% increase from 2004 to 2005.

Independent and family foundations, which account for the nearly nine out of 10 foundations, increased their giving by 10.3% in 2006, the Foundation Center said. That’s the first double-digit gain since 2001.

“It really is a golden moment where we are seeing a convergence of demographics and other trends,” said Council of Foundations President and Chief Executive Steve Gunderson.

The latest big splash came August 20 when Nike founder Phil Knight and his wife Penny pledged a $100 million to the University of Oregon, his alma mater, to create an athletics fund.

The tide of new money, fueled, in part, by strong gains in the stock market, shows no signs of stopping as new foundations are being created at a pace that has not been seen since the tech boom of the early 2000s. And foundations are only one piece of the activity.

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A New Approach

There is growing interest in microfinancing, or offering loans to poor people to start-up self-sustaining businesses. This type of giving is very popular among a new breed of entrepreneur such as Pierre Omidyar, the founder of eBay, and the Omidyar Network. Still well under 50-years-old, Omidyar is very committed to putting his large fortune to work to create social change.

Others in this group include Larry Page and Sergey Brin, the founders of Google, who are using the company’s new charitable arm and Google.org to support a number of social and environmental causes. Google’s charitable arm is even forgoing tax deductions it could qualify for in order to have the freedom to invest its funds more freely.

Super rich, rich, or simply wealthy, a generation of giving is on the way.

Paul Schervish and John Haven of the Center on Wealth and Philanthropy at Boston College, estimate the aging baby boom generation has accumulated trillions of dollars in assets and will likely donate a portion of this bounty to charities. Schervish’s and Haven’s model estimates from 1998 through 2052 some $41 trillion will change hands and some $6 trillion of this amount will go directly to charities in the form of bequests.

However, these donors could give some $15 trillion to $28 trillion over the course of their lifetimes during that same period, according to Schervish.

Philanthropists Of The Past

Big Names, Bigger Fortunes

These numbers could shift if the wealthy continue to give more while they are alive rather than wait as the founder of Wal-Mart, Sam Walton, did, until after his death. Last month, after his wife Helen Robson Walton died, the Walton family said much of her fortune will pass over a period of years to charity. It is unclear what the value of that donation will be, however, it has the potential to become one of the largest charitable foundations in the U.S., trailing only the Gates Foundation.

With the Buffet donation, the Gates Foundation, which now is the world’s largest grant-making foundation with a $33 billion war chest as of the end of 2006, will likely double the $1.3 billion in annual grants it awards. This money is being put to work to reduce poverty, disease and premature death in the developing world as well as improving access to education in the U.S.

While it remains to be seen whether the Gates Foundation will one day be linked to the eradication of malaria in the same way John D. Rockefeller has been linked to the vaccine for yellow fever, it's clearly equally ambitious.

The Buffet gift alone is more than double the lifetime total of legendary philanthropists Andrew Carnegie and John D. Rockefeller, when combined and adjusted for more than a century of inflation. Bill and Melinda Gates’ gifts are not far behind.

“They will have less bricks and mortar with the Gates name on them, but they will have given away a heck of a lot more money,” said Arthur Brooks, director of the nonprofit studies program at Syracuse University and author of the book on the subject of giving.

Today Vs. Yesteryear

While Buffet and Gates are in a class of their own, there are plenty of other wealthy individuals who have also made an impact with their donations. Examples include Intel Co-Founder Gordon Moore who has formed a $5 billion foundation to focus on science and environmental conservation to Los Angeles insurance and home-building magnate Eli Broad, whose $2.25 billion foundation supports education and other causes.

“People with significant wealth don’t think it is an optional activity,” said Melissa Berman, chief executive of Rockefeller Philanthropy Advisors, which assists wealthy individuals in developing and managing their charitable giving.

Unlike Carnegie, who answered the call of charity late in life, today’s philanthropists are beginning to make their donations at younger ages, Berman said.

“They are looking for a level of involvement and commitment earlier in their lives and at a much more intense level,” Berman said. She added, that many look to involve their families in the running of the foundation so that it becomes woven into the fabric of their lives.

These donors also are concentrating their resources and placing bigger bets on the causes they care about in an attempt to achieve lasting results. The idea is to ensure that there are sufficient resources to tackle a problem, rather than let money trickle in over time.

For those who are on the receiving end of these funds, there is greater pressure to show results. Many of the new philanthropists tend to apply business models to their giving and they want to see measurable results come from the money they are donating.